A single mother works for a fast-food restaurant. Her hours fluctuate from week to week, and she is never able to work more than 30 hours in a given week. She loses her job in June, and can’t find another until September. It’s the same story with her new job: Unstable hours, and she can’t hit 40. She makes $9 per hour — above the minimum wage, sure, but she still only pulls in about $11,000 dollars over the course of the year. She struggles quite a bit with the pressure to raise her two kids on such a low salary.
She gets a few hundred dollars per month in food stamps, and her family is covered under Medicaid. She also receives cash assistance from the government, including over $4,000 from the earned-income tax credit.
Many liberals argue that the food, health-care and cash assistance she receives from the government amounts to a subsidy to her employer, which should be paying her a higher wage. Ken Jacobs, co-author of a report on the subject out this week that received a lot of attention, writes here in The Washington Post that “American taxpayers are subsidizing people who work … because businesses do not pay a living wage.” Citing a 2013 report from the National Employment Law Project (NELP), The Huffington Post writes that “low wages at the top 10 largest fast food chains cost taxpayers about $3.8 billion per year.” In testimony before Connecticut lawmakers last month, an NELP lawyer argued that “the low-wage business model practiced by many of the largest and most profitable employers in the country not only leaves many working families unable to afford the basics, but also imposes significant costs on the public as a whole.”
It is easy to sympathize with this argument. Low-wage workers have had a really difficult time for many years now. They are working hard and playing by the rules, but many can’t seem to get ahead, despite years of struggle. If they are working so hard, why should their employers pay them so little that they qualify for government assistance?
To begin answering this question, it is important to acknowledge that wages are heavily influenced by market forces. And if a worker can only bring in, for example, $9 per hour in revenue to his firm, it is simply unrealistic to expect his firm to pay him, say, $15 per hour. If it did, the firm would be losing six bucks for every hour the worker worked. That arrangement can’t last long.
And so if the “living wage” movement — which in many incarnations advocates for a $15 per hour minimum wage — had its way, we would surely have many more Americans receiving government assistance, because many fewer Americans would be able to find a job at all. This is a serious flaw in the argument against low-wage employers that many liberals are advancing.
And there remains a bigger flaw still. Their argument against low-wage employers also reflects deeper misunderstandings about the nature of society and the roles different members play.
Society should have as a goal that no one who works full time and heads a household lives in poverty. But since this is a social goal, resources from all of society should be marshaled to meet it. The argument that low-wage employers are doing wrong by paying so little that some of their workers qualify for government assistance suggests that the responsibility of ensuring an adequate standard of living for these workers falls solely on the businesses which employ them. This is a very limited vision.
McDonald’s and Wal-Mart should bear some of that responsibility, sure. But not just them. Hedge fund managers, corporate CEOs, well-to-do economists and law-firm partners should pitch in, too. Resources from all of society — including, but not limited to, low-wage employers — should be used to ensure that no one who works hard lives in poverty.
And that, of course, is exactly how society is currently organized: Wages are (largely) determined by the market, and government assistance — funded by taxpayers — is used to help low-income families meet a baseline standard of living. That some low-wage workers receive government assistance isn’t a bug in the system; it’s a feature. The government isn’t subsidizing Wal-Mart; it’s not exclusively Wal-Mart’s responsibility to make sure that Wal-Mart’s workers bring in enough cash every week. Instead, the government is helping workers who can’t command adequate wages to make ends meet.
The system doesn’t work perfectly, of course. There are flaws in the assistance we give to low-wage workers, and it is likely the case that at least some government programs do lead to lower wages for some workers. The labor market has flaws in setting workers’ pay and hours. And many non-market factors influence these outcomes as well.
But if I had to pick between a system in which the responsibility to help low-wage workers escape poverty falls on all of society or falls merely on their employers, I would go with the former every time.
This isn’t to say that we should let corporate America completely off the hook. We shouldn’t, though conservatives often do. Firms need a stronger sense of attachment to society and to their workers. The “implicit contracts” that used to govern worker-firm relationships have become too frayed, and public policy should be used to strengthen them.
Indeed, ensuring that working- and middle-class Americans have the skills needed to compete in the 21st-century labor market is one of the greatest challenges facing public policy today. As is making sure that no one who works full time and heads a household lives in poverty.
The left is correct that low-wage employers have a role in meeting these challenges. But so do we all.